The Guardian from London, Greater London, England • 14

THE GUARDIAN Friday January 15 1993 DTD's investigation clears NatWest of dishonesty in the Blue Arrow affair Non-execs must protect us from the dirty tricksters 14 FINANCE AND ECONOMICS Frank Kane Michael Crystal and David Spencc, and lawyer Victor Temple, ruled that "there was no conspiracy by senior oficcrs of NatWest to conceal relevant information and documentation from the Blue Arrow inspectors or from the They also said that there was no substance to allegations that NatWest and the Bank of England were parties to a conspiracy to mislead the DTI. "At no stage did the Bank of England obstruct or impede the DTI in relation to its investigations into the Blue Arrow transaction." However, the inspectors are highly critical of a 1988 investigation into the Blue Arrow affair conducted by Sir Philip Wilkinson, then deputy chairman of NatWest and chairman of County NatWest, the merchant bank subsidiary that advised on the transaction. "The outcome of the internal Wil- The allegations of impropriety against Mr Frost first surfaced in the Economist magazine during the Blue Arrow trial. A spokesman for NatWest said yesterday that it was "too early for a decision" on whether to undertake a legal action against the magazine. "We hope they will take the opportunity to put the record straight," he added.

Rupert Pennant Rea, the Economist's editor, said there would be a news item in the latest edition, to be published today, "informing our readers of the inspectors' conclusions, including their verdict that the Wilkinson report was inadequate, and based on inefficiency and The 350-page report was based on statements from witnesses to the events of 1987-88, evidence from the previous inspectors' report and the trial, and 109 new witnesses. uty chief executives, Charles and Terry Green, and another director, John Plastow. It has cost the bank more than 123 million in share dealing losses, provisions and legal costs. It involved the longest fraud trial in City history, which cost the taxpayer an estimated 30 million but collapsed in disarray when the appeal court quashed the convictions against four financiers, three from County NatWest and one from Blue Arrow's other adviser, UBS Philips Drew, much to the detriment of the Serious Fraud Office's reputation. Lord Alexander said yesterday: "The inspectors have concluded, after a thorough investigation, that there is absolutely no substance in the serious allegations made against the integrity of the bank and Tom Frost.

This is a welcome end to an episode from which the bank learned important lessons years ago." Mr Frost, a deputy chairman of NatWest. said: "I am glad that the record has been set straight." But there was a note of discord from Lord Boardman, who resigned the chairmanship in September 1989, after publication of the first report. He said he was "very pleased" with the inspectors' findings, but added: "I regret that the inspectors did not take the opportunity to remove their criticisms, unfairly made in the report on the previous investigation, of Charles and Terry Green, and of Mr Plastow. Their consequent resignations from the bank and the irreparable harm done to their distinguished business careers are vivid illustrations of the damage to individuals and the injustice that can result from this kind of inquisitorial investigation." kinsonj investigations. was highly unsatisfactory," they said, but added: "The report was the product of inefficiency and inexperience.

It was not the product of The report concluded: "The board of directors of NatWest is committed to high ethical standards and integrity. On the basis of the evidence given to us we are confident that the board of NatWest has taken appropriate steps both to prevent a repetition of the events criticised in this report, and to ensure that the activities of NatWest are properly directed and monitored." Publication of the report is the final stage in the Blue Arrow affair, which has been enormously damaging to NatWest and to the City. The inspectors note that it led to the resignation of senior officers of the bank, including the chairman, Lord Boardman, two dep Ni I ATIONAL Westminster Bank has been I cleared by Dcpart- ment ot Trade and In dustry inspectors of deliberately withholding information from the first DTI investigation into Blue Arrow, and of "allegations of dishonesty and The DTI yesterday published the result of its investigation into the claims, which surfaced during the trial of City financiers and banks for fraud in connection with the 1987 rights issue by the Blue Arrow employment group. Their findings, which have become known as the "Frost Report" after Tom Frost, then chief executive of NatWest, decide that "there is no substance in any of these The inspectors, barristers the final report by DTI inspectors into the bizarre events of September 1987, and their consequences, draws a line under the whole business, concluding that National Westminster, which owned Blue Arrow's merchant bank adviser County NatWest, was not involved in a conspiracy to withhold evidence from the first DTI investigation. Similarly, the Bank of England is cleared of any involvement in the alleged cover-up.

The only criticism is of Sir Philip Wilkinson, who had the misfortune to be charged with investigating the whole business before the DTI sent their men in. He gets a rap on the knuckles, but no more, for his "inexperience and That may sound strange for a man with a lifetime in banking, but in fact he had only a few years of dealing with the macho world of investment banking at County. In view of the subsequent need for two inspectors' reports, he can be excused for his failure to fully understand at first grasp the labyrinthine complexities ofthemesshewas thrown into. But there are no winners from the affair. It has cost Blue Arrow 123 million, while the taxpayer has had to pick up a tab of around 30 million for the aborted fraud trial resulting from the first DTI report.

Careers have been tarnished all round from Lord Boardman and his fellow board directors who resigned in 1989, to the corporate financiers charged with conspiracy to defraud, to the SFO advocates who made such a hash of the trial. Even the trial judge has done himself no favours in his mishandling of it. The curse of Blue Arrow spread itself far and wide. The main lesson to be drawn seems strangely anachronistic in the recession-hit 1990s. It is that you have to take great care when marrying the very different cultures of retail banking with the gung-ho ethos that prevails in merchant banking.

County is now under control at NatWest, and looks set for a brighter future, but NatWest has learned that lesson the hard way. Bank says no to early rate cut Iain Vallance of BT looking for a regulator for the regulators Watchdogs for privatised industries are doomed to failure, claims BT chief Edited by Will Hutton THE backwash of the British AirwaysVirgin Affair extends by the day. First there was "Operation Barbara" the detailed dossier on Richard Branson and Virgin that was to be the basL of BA's anti-Branson briefings; and now we release details of "Operation Covent The extent of this latter operation, in which BA attempted to uncover a Virgin dirty tricks campaign against it, is even more extraordinary (see Daniel John's account on the accompanying page). In fact nothing was proved and Richard Branson has denied that Virgin ever ran such an operation: but at the time BA's executives seem to have believed that everything from interrupted phone calls to models being moved on filing cabinets resulted from Branson's malevolence. British Airways plainly considered it was in the middle of outright commercial war and was trying to meet fire with fire; but the heart of 'BAgate' is how many of the board knew and authorised the increasingly bizzare and sometimes unfair practices that its consultants and employees were deploying on its behalf.

We now know that some payments were authorised at the top; but how much more was known? In the days since BA's apology, the lack of agitation from both the institutional shareholders and the non-executive directors has been painfully obvious. The general criticism of institutional investors is that they have become absentee landlords, anxious to secure ever higher dividend payments and to sell out, whenever they are unhappy, to outside predators. Events at BA seem to underline that passivity. Yet the insurance companies, pension funds and unit trusts are investing the savings of the general public; the very same public that is anxious to sec probity in financial life, and presumably if allowed to cast the votes attached to its shareholdings would cast them on the side of those who in this case arc against dirty tricks campaigns. Yet that voice is not heard, and unless Frank Field's plan to unitise those savings is implemented, unlikely to be.

Nor has it been heard, at least publicly, from the non-executive directors. Wars are fought from the top; and in the absence of any other control mechanisms it falls to the non-executives to ask who authorised what and when and how a corporate culture could have developed in which these amazing goings-on were initiated and encouraged. Watch this space. Arrow RIP AT last, it seems, the Blue Arrow affair can be laid to rest. There are few who will mourn its passing.

The publication yesterday of News in brief 6bn EC loan to Italy backed Italy said yesterday that EC monetary officials had endorsed a 8.25 billion balance-of-payments loan to back up the country's plans to slash its budget deficit. Italy asked for the loan after the lira was forced out of the exchange rate mechanism last September along with sterling. Rome hopes the EC political backing signalled by the loan will help convince financial markets that the country is serious about meeting the Maastricht Treaty's tough criteria on economic and monetary union. EC finance ministers are expected formally to approve the loan on Monday. Press no luxury Bernard Arnault, chairman of French luxury group I.VMH, yesterday denied reports that he has offered to buy one of France's largest press groups, Hersant, for FFr4 billion.

Her-sant controls a stable of dailies including Le Figaro and France-Soir. According to the newspaper Liberation. Arnault has hold four meetings about a possible purchase. The Moet Hennessv Louis Vuitton group said: "LVMH's external growth is based on its core activity, "Everything points to the eventual, and some might say imminent, breakdown of regulation, even at the national level," Mr Vallance said. Regulators had tried to involve themselves in the running of businesses in which they had no expertise, he said.

The convergence of industries such as telecommunications, computing and entertainment would present regulators with an impossible problem. In telecommunications, the regulator had abandoned its stance that it was a surrogate for competition "not a manager of the He said that regulators liked to regulate. "This is how they make their mark. It requires more disinterestedness than the average human being can muster not to wish to make a mark." Protecting competition, not promoting competitors, was the role of regulators. Mr Vallance added: "I am encouraged by the burgeon Colin Weston Labour Correspondent INTERVENTIONS by the watchdogs of consumer interests in former state monopolies are doomed to fail in the next few years, according to Iain Vallance, chairman of BT, the first privatised utility.

In a speech to business people, staff and students at Cranfield School of Management, Mr Vallance said that the regulators' lack of expertise in increasingly complex and globalised markets raised the question of who should regulate the regulators. Their powers, the single most important influence affecting the telecommunications industry, required some safeguards, he said. The bodies such as Oftel, for telecommunications, Of-gas, for the gas industry, and Offer, for electricity, were earlier this week cited as prime examples of the need to reform the regulatory sys will take time for the full impact of the easing in monetary policy to work its through into increased activity. Analysts said the Government was likely to wait until closer to the Budget the date of which was fixed yesterday for March 16 before allowing interest rates to slide. John Shepperd, economist with S.G.Warburg, said the earlier weakness of money market rates had been caused by technical factors, and the chances of a cut in rates today were "small to The City is forecasting a fall in the annual rate of inflation from 3 per cent to 2.7 per cent today, its lowest for 6Vi years, but says the reduction will be the result of cheaper home loans.

Mr Shepperd said the underlying rate which excludes mortgages might even edge up slightly. On the stock market, initial hopes of lower rates ended the record-equalling run of seven consecutive daily falls, but the recovery fizzled out as the Bank made its intentions clear. Profits and more jobs put at risk in Siemens Nicholas Bannister, Technology Editor, in Munich SIEMENS, Europe's largest electrical group and a bellwether of the German economy, yesterday warned of falling profits and further job cuts after announcing a slowdown in profits growth during the first quarter. The chief executive, Dr Hein-rich von Pierer, said the current financial year would be "characterised by slower growth as a result of the most difficult business environment" and it would be hard to maintain full-year profits. First-quarter net income rose 2 per cent to DM406 million (166 million), compared with the 8 per cent upturn for the whole of 199192.

While sales for the first quarter were up 4 per cent, the value of new orders fell sharply, down 8 per cent to DM18.6 billion. Dr von Pierer said that more than 10,000 jobs would go this year, bringing the workforce to below 400.000. The biggest cuts would be in the group's two big problem areas, the Siemens Nixdorf computers business and the semi-conductor operations, both of which continued to incur heavy losses. He said that while orders for the current year might rise by 1 to 2 per cent to about DM87 billion and sales should show stronger growth to about DM84 billion, profits were likely to be affected. "We are prepared for leaner times following live consecutive years of growth in net income.

We will have to make major efforts to maintain the level of net income reached last year. Siemens is heavily dependent upon the German market, which accounts for 43 per cent of its turnover, and upon interest and other financial transactions which make up almost half its pre-tax profit. The losses on the computer and semi-conductor side have been accompanied by a downturn in the group's general electrical engineering businesses as the global recession has cut demand for factory automation systems and equipment for the building industry. However. Siemcns's infrastructure-related operations, including its big telecommunications and rail transportation divisions, have held up well, partly as a result of continued demand from eastern Europe.

Dr von Pierer dismissed claims that the German economy was "on the brink of Larry Elliott Economics Correspondent THE Bank of England moved yesterday to stamp out expectations of an early reduction in interest rates after speculation mounted that the Government would use the release of today's inflation figures to provide a boost to the economy. Sterling tumbled on the foreign exchanges as some overseas dealers anticipated an early move, falling sharply in early trading and closing more than 2', pfennigs lower at DM2.4890. Optimists in the City had been encouraged by the weakness in money market rates earlier this week, but the Bank's actions yesterday suggested the authorities were in no hurry to see the cost of borrowing fall below the current rate of 7 per cent. The Government has been mildly encouraged by the pickup in consumer demand in recent months, but believes it Whitbread sheds 321 in brewery closure and HQ shake-up Bon Laurence BEER and pubs group Whitbread is closing its Exchange brewery in Sheffield, shutting a distribution depot at Marlow to the west of London and trimming its brewing business headquarters in Luton with the loss of a total of 321 jobs. The Exchange brewery will close in July, little more than a year after it produced Whitbread's Celebration Ale to mark the company's 250th anniversary.

"Closure of the brewery doesn't seem to be much of a way to celebrate 251 years," said Steve Cox, campaigns manager for the Campaign for Real Ale. Whitbread said yesterday that, by shutting the Sheffield plant and shifting production to other breweries, its overall productivity in brewing should increase by about 15 per cent. Its brewing division's output will approach 4,000 barrels per employee per year. At the moment, the Exchange brewery produces Higsons Mild, Chester's Best Bitter, Bentley's Yorkshire Bitter, Trophy, Higson's bitter, and Gold Label. Production of both Chester's and Higsons has already been shifted: Chester's was originally a Salford brew and Higson's was produced in Liverpool, part of the Bod-dington stable before it was bought by Whitbread at the end of 1989.

Miles Templeman, who runs the brewing side of the Whitbread business, said yesterday that the company intended to keep producing all the existing brands. Trophy will be moved to Whitbread's Castle Eden brewery at Hartlepool. It has not yet been decided where the other beers will be produced. The closure of the Sheffield brewery will cost 186 jobs. The rejigging of Whitbread's distribution operation in southern England will mean that 68 jobs go with the closure of the Marlow depot, and cutbacks at the Luton headquarters of the Whitbread Beer Company will cost 67 posts.

Whitbread, like other brewers, has been hit by the downturn in demand for beer. In the first half of 1992 the company increased its production, taking an increasing share of a declining market but, in the second half, the beer market declined by 4 to 5 per cent. tem in a study published by the Right-of-centrc European Policy Forum. It said that the privatised utilities were suffering from over-regulation. Mr Vallance's remarks follow a public row between British Gas and its watchdog, Ofgas, in which the company was accused of brainwashing customers into buying expensive service contracts.

His comments also follow criticism of an interim report by Professor Stephen Littlechild, director-general of Offer, exonerating the 12 regional electricity companies on the "dash for likely to increase electricity prices to consumers and blamed for heavily reducing the market for British-produced coal. Last year, BT accused Oftel of imposing unfair price structures after it proposed to lower the cap on BT's average price changes to 7.5 percentage points below the rate of inflation from this summer. The cap had been 6.25 points below inflation. Macmillan and OAG separately or as a whole and consider offers for parts of Macmillan. A court in London will tomorrow be asked to rule whether transcripts of interviews with Ian and Kevin Maxwell by insolvency experts should be handed over to the Serious Fraud Office.

The interviews were held under civil proceedings covered by the 1988 Insolvency Act and carry a duty of confidentiality. Regulators' role BRITISH Telecom's Chairman Iain Vallance is both right and wrong. He is right to argue, as he did in a speech to the Cranfield School of Management, that the current system of regulation is reaching the end of its useful life; but he is wrong to claim that technological imperatives imply that the idea of regulation will be on the retreat. Regulation is here to stay; and it is likely to become tougher rather than weaker. The reason is that the "consu-merate" is not prepared to trust pricing, employment, investment, and the distribution of new technologies to the benevolence of large monopolies -who under British company law have only a legal obligation to maximise the interests of their shareholders.

The regulator is the guarantor that the interests of wider stakeholders are taken into account, too; and that means the public at large. So, willy nilly, the regulator will be concerned with how monopoly businesses are run; and the dialogue between the two will have to deepen, however distasteful Mr Vallance may find it. But it cannot be one-way traffic; the regulated have rights as well as obligations, which means being offered safeguards against arbitrary intervention and high-handedness. In short the march of technology will lead not to less regulation but to a proper regulatory constitution. It is long overdue.

which is its brand names. The press has nothing in common with luxury." Ratings cut Credit rating agency Standard Poor's has cut the claims paying ability rating of both Sun Alliance London Insurance and Royal Insurance. Both companies have suffered from losses on domestic mortgage indemnity and warn they will both find recovery to former strength difficult. Life sales up Lloyd's Abbey Life increased its UK life business by 6 per cent in 1992. Business picked up during the second half of the year and was underpinned by strong growth at Black Horse Financial Services where new sales rose by 19 per cent.

Volkswagen Yesterday's report on Volkswagen inadvertently stated that the company was postponing a planned DM2.4 billion investment in east Germany. The correct figure is DM4.2 billion. More cars made Car production rose by 4.39 per cent last year, the Society of Motor Manufacturers and Traders said. The industry predicted a further steady increase lor 1993. PHOTOGRAPH DAVID SILLITOE ing debate about who should regulate the regulators, about the limits that should be imposed on their powers and the principles which should apply." Regulation to produce common standards was, in telecommunications, vital.

Protecting customers from high prices and poor services inflicted by a dominant enterprise was also important. But economic regulation, allocating markets, should not extend to protecting competitors from market forces once they were reasonbably established, he said. Mr Vallance went on to complain about the failure, relative to the UK, of liberalisation in European markets. "The big worry in Europe is that the difficulties in ratification of the Maastricht treaty will curb the Commission's enthusiasm for challenging restrictions to competition, or enable member states to use subsidiarity arguments to block progress," he said. auditors' investigation revealed that there was "no material cause for Mr Lovatt's payment is understood to include a 1.1 million severance payment, including the value of a car.

plus pension. United Norwest last night declined to comment. Mr I.ovatt. aged 55. has homes in Cheshire and Queensland.

Australia, and remains available for consultancy by the society. He left the merged society, with the former chief executive of the other partner, by agreement once the merger was established. His reported departure payment would reflect contract arrangements. The National Association of Cooperative Officials, which has 4,000 middle, senior and executive management members in the co-operative movement, said yesterday: "This is the first knowledge we have of any deal. We have no comment to make." United Norwest, based at Hanley, Stoke-on-Trent, has a 600 million-plus turnover, employs 9,500 and has nearly 1 million members.

Co-op row over 2.7m pay-off Bids sought for US Macmillan group Pauline Springett ADMINISTRATORS trying to pick up the pieces of the Maxwell Communication Corporation empire yesterday officially put the American Macmillan lnc publishing group up for auction. Price Water-house said it would consider offers for Macmillan either on its own or as a package with Official Airline Guides. The decision to put Macmillan up for sale was sparked by a bid by a US publishing group headed by Robert Bass. Just before Christmas, it offered $1.2 billion. But MCC creditors are owed $2.2 billion and PW rejected the offer as too low.

The Bass bid has generated a stream of inquiries from potential buyers and PW has changed its plans of how to realise the largest possible sum for creditors of the Maxwell empire. PW had planned to sell Official Airline Guides the other main part of the US arm of the Maxwell publishing group and then float Macmillan later this year. Now I'W will look at offers for Martyn Halsall Northern Industrial Correspondent RITAIN'S largest independent co-operative group. United Norwest. last night faced widespread con troversy over a reported 2.7 million retirement package for its former joint chief executive.

Only one or two members of the 18-strong board are believed to have known about the departure deal, which was not identifiable in the society's annual report. The payment to Harry Lovatt, a leading architect of the major co-operative merger between Norwest and United a year ago, follows disquiet over the departure of his successor, John Thomson, who left with a reported 350,000 payment. Mr Thomson stood down from the society's leadership, after only nine months as its first sole chief executive, following allegations of financial irregularities, which he strenuously denied. United Norwest said later an (AKmm. sale I ig.